RR’s Annual Lender Unit Economic Survey
- The following data is based on RR’s Annual Lender Unit Economic Survey representing more than 15,400 franchised units (14,800 QSR and 600 FSR across 29 chains) for FYE 2020.
- Notably, lower FSR franchisee representation in lender portfolios reflects: (1) increased franchisor acquisitions of large franchisees (Buffalo Wild Wings, Chili’s and TGI Friday’s); (2) lenders reducing exposure to FSR franchisees through loan sales or payoffs; and (3) a move out of the performing portfolio group from stressed FSR borrowers.
- 2020 rent as a percent of portfolio sales declined 60 bps to 6.1% for QSR (benefit of sales leverage) but increased 140 bps for FSR (sales deleverage and longer-term impact of rent escalations associated with the use of sale leaseback financing).
- As rent represents an average for the portfolio (including a combination of both leasehold and fee collateral) the percentage should not be misconstrued for actual rent payments.
- QSR franchisee adjusted leverage (Debt+Rent*8)/EBITDAR) declined to 4.45x in 2020 from 5.14x in 2019, also reflecting this segment’s strong results.
- The QSR average Fixed Charge Coverage Ratio “FCCR” (Annual Debt Service Payments + Rent)/EBITDAR) improved to 1.94x in 2020 from 1.60x in 2019 and far exceeds the typical minimum 1.25x ratio used to underwrite franchise loans.
- FSR leverage ratios are not available as the sharp sales declines distorted EBITDA (negative in some situations) with liquidity becoming the main focus for these borrower.